This is a story about an airline with lots of potential, in a fast-growing region. But it’s not a happy story.
It’s the story of Philippine Airlines.
The Philippines is not a wealthy country—its per-capita GDP ranks somewhere close to Guatemala and Morocco. But it’s an attractive market for airlines for many other reasons. First, very much unlike Guatemala or Morocco, the population of the Philippines exceeds 100m people. It’s situated in the heart of East Asia. Its economy has grown at least 5% every year since 2012 and expanded more than 6% in the first half of this year. Through July, tourist arrivals are up 9% y/y, putting the country on course to achieve its goal of more than 7m visitors for 2018—last year was the first time the figure even topped 6m. As for outbound travel, roughly a tenth of all Filipinos work outside the country—it’s the world’s most prolific major work-abroad country— commuting back and forth to places like Hawaii, California, Saudi Arabia, Australia and even culturally-homogenous Japan.
There’s at least one airline taking advantage of these attractive conditions. But it’s not Philippine Airlines. It’s Cebu Pacific, a low -cost carrier that has quietly become one of the world’s most profitable airlines. AirAsia, too, although it has struggled somewhat with its venture in the Philippines, made money there last quarter and plans an IPO for late 2019. Both Cebu and AirAsia merged with rivals in the country, buying Tigerair Philippines and Zest Air, respectively. The market is thus dominated by just three airlines.
Long before the rise of Cebu and AirAsia, Philippine Airlines was a deeply-troubled carrier but one not—unlike many struggling flag carriers—owned by its government. Privatization came in the early 1990s. But not even its private-sector owners could avert a near-shutdown in 1998, in the aftermath of the Asian financial crisis. A bankruptcy proceeding enabled PAL to get back on its feet and even make a bit of money in 2000 and 2001, only to relapse into crisis not long after the 9/11 attacks. It wouldn’t exit bankruptcy until 2007, when bullish global economic conditions helped it generate record profits. They would quickly disappear again, however, during…
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